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Smart Revise Question

J

Jimmy white

Member
What rate of investment return must be assumed when deriving a "reduction in yield" figure for pensions business?

Answer:
The central rate of investment return, ie 7% per annum

I think this question has exposed a bit of a gap in my knowledge as I don't recall seeing anything like this in the core reading. What is a "reduction in yield" for pension business and why is it 7%?

Thanks
 
Hi

Fortunately, this isn't too significant a gap!

A reduction in yield shows the effect of charges or expenses on the annual return to the policyholder.

If you've got the Course Notes handy, Chapter 10, page 6 is the reference for this.

Best wishes
Lynn
 
Lynn Birchall said:
Hi

Fortunately, this isn't too significant a gap!

A reduction in yield shows the effect of charges or expenses on the annual return to the policyholder.

If you've got the Course Notes handy, Chapter 10, page 6 is the reference for this.

Best wishes
Lynn
Click to expand...

Hi Lynn,

Thanks for the reply. Smart revise shows chapter 10 to be Solvency II. Unfortunately I only use the core reading, not the Acted notes. Can you show me where it is in unit 7 of the core reading or just elaborate on where this fits in with the Solvency II Framework?

How is 7% a fixed annual return for a policyholder of a pension product?

Thanks for your help.
 
Hi again

It's from Core Reading Unit 6, Section 3.3.

This is about "UK regulatory environment" rather than "Solvency II". In particular, this section is about product information, and illustrations that are provided to customers at the point of sale.

These require companies to project policyholder benefits at a central assumed rate of investment return (and a lower rate and a higher rate).

The central rate for pensions business is 7%pa.

Actually, I've noticed that the Core Reading now just refers to the "central rate", it doesn't give its numerical value. So strictly, knowing that it is 7% isn't actually needed for the SA2 exam.

Hope clearer now :)
Best wishes
Lynn
 
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